Foreign Direct Investment (FDI) - Purchase of physical assets or a significant amount of the ownership (stock) of a company in another company to gain a measure of management control

Foreign Indirect Investment (AKA Portfolio Investment)

Investment that does  not involve obtaining a degree of control in a company

Location of Ownership

Location of Investment

Economic Sector of Investment

• FDI in raw materials has declined
• FDI in manufacturing has stabilized
• FDI in service sector and technology-intensive manufacturing has grown rapidly

Globalization

Mergers and Acquisitions

Entrepreneurs and Small Businesses 

International Product Life Cycle

Market Power

Eclectic Paradigm

Market Imperfections

- Stating that a company will begin exporting its products and later undertake foreign direct investments as a product moves through its life cycle

- The theory explains why the FDI of some firms follows the international product life cycle of their products. But  it does not explain why other market entry modes are inferior or less advantageous options.

When an imperfection in the market makes a transaction less efficient than it could be, a company will undertake foreign direct investment to internalize the transaction and thereby remove the imperfection

Trade Barriers (e.g., tariffs)

Specialized Knowledge (e.g., technology, managerial experience)

- Stating that firms undertake foreign investment when the features of a particular location combine with ownership and internalization advantages to make a ocation appealing for investment.

Location advantage

Ownership advantage

Internalization advantage

- A firm tries to establish a dominant market presence in an industry by undertaking foreign direct investment

Vertical integration - extension of company activities into stages of production that provide a firm's inputs (backwards integration) or absorbs its output (forward integration)

Controlling the balance of payments

Obtaining resources and benefits

Government Policy and FDI

Methods of Restricting FDI

Host Countries

   Ownership Restrictions

   Performance Demands

Home Countries

   Differential Tax Rates

   Sanctions

Government Policy and FDI

Methods of Promotin FDI

Host Countries

   Tax Incentives

   Low-interest Loans

   Improve Infrastructure

Home Counties

   Insurance

   Loans

   Tax Breaks

   Political Pressure